Cash for Clunkers - Destroying Wealth

Great Debates
1

I was just looking over this list of cars on the ‘cash for clunkers’ list, and realized that this program is going to buy up large numbers of perfectly good vehicles, presumably to be destroyed.

This is simply a massive destruction of wealth. The government is encouraging people to turn in valuable assets, which will then be destroyed. The government is actually requiring that the cars be turned in to salvage, and that the salvage operators MUST destroy the engines, transmissions, and other drivetrain components so they cannot be re-used.

This is idiotic in the extreme. I understand the rationale - to get rid of older, fuel guzzling autos to increase the fleet average fuel economy. But come on… Is it really worth destroying so many assets?

To make matters worse, many of these cars get better mileage than many new vehicles. If all that were being destroyed were old Ford Broncos or something, I might see the point. But this list has some very fine, reasonably fuel-efficient cars on it. For example:

2000 Audi A6
1997 BMW 5 Series
1998 BMW 7 Series
1999 Chevrolet Camaro
1994 Chevrolet Corvette
2000 Volvo S80
2001 Volkswagon Passat
2002 Chevrolet Silverado 1500
2002 Dodge Caravan
2003 Dodge Ram Pickup
2002 Ford F-150
Ford Mustangs through the year 2000

Some absolutely wonderful vehicles are on the chopping block - like the entire 1990’s era Toyota Land Cruisers.
And many, many more.

The unintended consequences of this could be pretty bad. For example, poorer people absolutely depend on the used car market to provide their vehicles. Especially hard hit would be blue collar workers who need pickup trucks, as almost all the older pickups are on the cash for clunkers list. As they are bought up and destroyed, the prices of the existing ones will go up.

Destroying all those perfectly good engines and transmissions is also going to hit people hard who rely on a used market in drivetrain components to keep their older vehicles running.

At the heart of this is an economic fallacy - the bright idea here is that two birds will be killed with one stone - get rid of the worst gas guzzlers, and stimulate demand for new vehicles. This is thought to improve the economy. But ultimately, the wealth of a country lies in the sum total of its durable goods and its services. The wholesale destruction of a good chunk of a country’s auto fleet is not a good thing.

Anyone else have thoughts on this?

One positive suggestion I have - if you’ve got a sports car on the list, hang onto it. Its value is bound to go up. The government wants to destroy a lot of classic sports cars, such as the Mitsubishi 3000, the C5 Corvettes, Mazda RX-7’s, etc. A damned shame.

2

This bill won’t necessarily do much for the environment, either. The original bill required that the new vehicle have at least a 25% improvement in mileage over the old one, and that the old one have mileage of 15mpg or less. Pressure from the auto industry changed that - you can now trade in an older, 18 mpg truck for one that gets 19mpg, and still get the rebate. And taking the rebate means your old truck will be destroyed.

What this bill has essentially turned into is a way for the auto industry to destroy the fleet of used cars, which are essentially competition for new cars. Elimination of that competition will drive up the price of used cars, and could drive up the price of new cars as well. In the meantime, people who can’t afford new cars are going to be screwed.

3

Cars are depreciable assets, not stores of wealth.

4

Hey Rumor_Watkins–Is a car more valuable than a cube of assorted material that used to be a car?

5

Not permanent stores, no. Neither are most durable goods. Destroying them when they are still serviceable still hurts the economy.

What do you think would happen if the government just chopped up all the existing cars and told people to buy new ones? Do you think the economy of the country might be hurt just a little bit by that?

The only ‘good’ thing about this program is that it’s relatively small. So far. But it’s also a colossal cluster-f*ck. Dealers are reporting all kinds of confusion and hassles, the plan has already run out of money and has to be subsidized with another 2 billion dollars, getting rid of all the vehicles being turned in will be a nightmare, the used auto parts business is about to get a kick in the teeth, there will be fraud galore as perfectly good vehicles are shipped out the back door or quietly shipped overseas rather than be destroyed, etc.

6

Aren’t you the great free marketeer? If the government wants to effectively buy a used car from a set list at $4500 a pop and turn the fuel recepticle into glory holes for the foreign service workers, then the value has been set and extracted.

You know, you didn’t have to turn your car in if you thought it was worth more than $4,500… Or are you assuming that, in a free market of course, if I don’t put an item that I purchase (and ascribe my own value to) to a mythically ascribed “good enough use”, I should turn that item over to someone else for free so they can continue to extract value from it?

7

Hey Rumor-Watkins–Where did the government get the $4500 used to buy each car?

8

But that’s not what’s happening. They’re effectively offering to buy your car from you for $4,500. That’s an economic trade and it would cause something else to be purchased in its stead.

9

I’m sure they sold some bonds to China or something.

10

Hey Rumor-Watkins–where is the government going to get the money to pay back the Chinese bondholders?

11

How are you accounting for the cost of the emissions these inefficient cars would have produced?

12

I would appreciate being called by my proper handle.

How is this relevant to the “but they’re destroying wealth” point? Oh wait, it isn’t.

13

You won’t answer my questions but you want me to answer yours?

Also, it is absolutely relevant.

Anyway, I’ll cut to the chase. The citizens of the US own a bunch of stuff. They also pay taxes to the government. If the government uses some of that tax money to buy stuff and then destroy, the total wealth of US citizens has decreased. It doesn’t matter that the individual people that had their stuff destroyed were paid for it, we’re talking about the total wealth of all the individuals, not the wealth of any one individual.

And sorry about messing up the - and the _.

14

Quibbling over a hyphen vs. a …whatever you call the lazy hyphen is petty and silly.

15

From what I understand, more than 250,000 vehicles have already been purchased under this pogram. That’s:

250,000 engines and transmissions no longer available to keep used cars running.
250,000 cars no longer available to people who can’t afford to buy new.

16

They printed it. Don’t let anyone tell you the government cannot create wealth. It is self evident that they can. They can print money, damnit.

17

Money <> Wealth. Ask the Argentinians.

18

Hey Rumor_Watkins–Do you care to further rebut or have you seen the error of your ways?

19

The transaction causes another item to be created - i.e. the car manufacturer now creates something of greater value than what was destroyed.

20

Look up the definition of ‘opportunity cost’ to understand the fallacy you are engaged in.